Sen. Elizabeth Warren, D-Mass., recently set off an internet food fight when she declared her support for the Federal Trade Commission’s investigation into whether a private equity firm’s purchase of sandwich chain Subway should be allowed to go ahead. “We do not need another private equity deal that could lead to higher food prices for consumers,” she wrote on X.
But Warren is quite right. If completed, the $10 billion deal will hand control of 40,000 sandwich shops across the United States -- more than twice the footprint of either McDonald’s or Starbucks — to private equity firm Roark Capital. If this deal follows other cases of corporate concentration, it will likely be bad for workers, bad for franchise owners, bad for food suppliers and bad for your wallet.
Roark (yes, the name is a nod to Howard Roark from Ayn Rand’s “The Fountainhead”) already owns sandwich chains Jimmy John’s, McAlister’s Deli and Schlotzsky’s, which Subway’s agreement with franchisees lists as competitors, as well as Arby’s, another fast-food chain. If you have multiple separate brands, “but they’re all owned by the same private equity firm, it’s not really any choice at all,” Brian Callaci, the chief economist at the Open Markets Institute, told me. “It’s an illusion of choice.”
Monopolies and oligopolies (where a market is controlled by a small number of producers) give companies the power to push through price increases because customers have fewer options. More than a few observers believe the inflation of the past few years was accelerated by food and agricultural giants — aka “greedflation.” As Time magazine pointed out last year, four corporations are responsible for 60% of the market share for such dietary staples as pork, cookies, pasta and coffee.
But the issues go deeper than just who owns the company where you buy lunch. The purchase of Subway, if completed, could also give Roark increasing power over both franchise owners who wish to enter or remain in the sandwich business and their suppliers. Ever-larger corporations have more power to dictate the price they will pay for products, which in turn puts the squeeze on supplier revenues, causing them to have less money for everything from goods to salaries. “We know that profit goes down for suppliers when consolidation happens upstream. We normally think about that in terms of Walmart or Amazon,” Callaci explains.
Since the Reagan administration, the federal government and the judiciary have taken the position that monopoly and oligopoly is only a problem when it results in higher costs to consumers. This framing, the brainchild of conservative legal theorist (and failed Supreme Court nominee) Robert Bork, holds that the market will act as an enforcer, disciplining companies that take advantage of their dominant position to gouge shoppers or offer subpar service. Even many Democrats and Democrat-appointed judges adopted Bork’s framework.
Starting about a decade ago, a small group of economists and lawyers — mostly, but not exclusively, on the left — began to argue this was a narrow framework. In their view, the Reagan-era orthodoxy ignored the broader impact of monopolies on the economy, such as lower wages when one employer dominates in a sector. And the old framework just didn’t match reality: over time, corporate consolidation has contributed to an increase in inequality and raised costs in areas ranging from ticket sales to health care. Hospital prices, for example, are 15% higher in regions where there’s a monopoly on the service. There’s no reason to suspect the same can’t happen when it comes to fast-food sandwiches.
This view was embraced not just by Warren, but by President Joe Biden. Lina Khan, Biden’s pick to head the Federal Trade Commission, was central in this intellectual reframing. At the FTC, Khan led a pushback on the power of Amazon and Meta, as well as a proposed ban on noncompete agreements, arguing they give employers too much power over not just their employees, but the job market.
Corporate America and their cheerleaders aren’t happy about all these efforts. They seized on Warren’s Subway tweet to make a mockery of the meddling Feds. Who cares about a sandwich? You can always go eat a hamburger or salad! Or you can go to the corner deli and skip the corporate behemoths entirely. And, anyway, why is anyone wondering about a monopoly when it comes to sticking some food between two slices of bread? Surely, you can put it together yourself if the price isn’t right.
None of this convinces Warren — nor should it. “It’s pretty rich that critics rush to defend a private equity-backed effort to make a foot-long sandwich more expensive and chain restaurants more dominant,” she told me. “The reality is that for many Americans wanting a quick, affordable lunch, their nearest option is often a chain sandwich shop, and it’s deeply out of touch to say working people can go eat a hamburger somewhere else when executives jack up prices.”
Big business always has a reason why regulation shouldn’t happen, says Don Cohen, co-author of a new book on corporate public relations campaigns: “Corporations and their enablers have been using these arguments for over a century.” Wise words to remember the next time you hear about the corporate pushback to any proposed government action. As for Subway and Roark Capital, the Federal Trade Commission’s decision likely won’t come for at least another several months. Here’s hoping it doesn’t leave consumers with an unappetizing aftertaste.